The World Bank (WB) has increased its growth forecast for Vietnam this year from the 6.3 percent it projected in October to 6.7 percent, matching the government’s annual target following steady progress during the first nine months.
Stronger domestic demand, robust export-oriented manufacturing and a gradual recovery of the agricultural sector are driving Vietnam’s economy, according to Taking Stock, the World Bank’s bi-annual economic report released on Monday.
The manufacturing and services sectors respectively grew by 12.8 percent and 7.3 percent between January and September, the report said.
“Growth momentum picked up across major economies and global trade recovered in 2017,” said Ousmane Dione, World Bank Country Director for Vietnam. “With incomes rising and poverty falling, Vietnam’s economy had another good year of strong growth and broad macroeconomic stability.”
Vietnam expects economic growth of 6.5-6.7 percent next year, and thinks that the target of 6.7 percent set for this year is within reach, Prime Minister Nguyen Xuan Phuc said at a recent session of the legislative National Assembly.
Low inflation and rising wages sustained buoyant domestic demand and private consumption, while the stronger global economy has helped Vietnam’s export-oriented manufacturing and agricultural sectors.
Job growth has continued, with 1.6 million new jobs added in the manufacturing sector over the past three years, and 700,000 additional jobs in the construction, retail, and hospitality sectors, leading to higher aggregate labor productivity.
Despite progress in resolving non-performing loans, risks remain, including the lack of robust capital buffers in some banks, especially amidst rapid credit growth.
Fiscal tightening is underway, according to the report, and has led to a leaner budget deficit and containment of public debt accumulation. However, the decline in public investment – falling to 16 percent of total spending in the first nine months of 2017 compared with an average of 25 percent in recent years – may not be sustainable over time, as Vietnam needs significant investment in infrastructure to support future growth.
A slow-down in structural reforms could also impact the ongoing recovery, especially given the weaker growth in investment. Enhancing macroeconomic resilience and structural reforms could lift Vietnam’s growth potential over the medium term.
“Structural reform remains a central priority in view of tepid productivity growth,” said Sebastian Eckardt, the World Bank Lead Economist for Vietnam.
“Building on progress already made, Vietnam can further lift productivity growth through investments in needed infrastructure and skills as well as deeper reforms of the business environment, state-owned enterprise (SOE) and banking sector.”
Over the medium term, growth is projected to stabilize at around 6.5 percent, while inflation is projected to remain low.